Analysts’ Cash Flow Forecasts are Not Sophisticated: a Rebuttal of Call, Chen and Tong (2013)
8 Pages Posted: 24 Jul 2013
Date Written: July 2013
Call, Chen and Tong (2013) claim that the conclusion we reached in Givoly, Hayn and Lehavy (2009) that analysts’ forecasts of cash flow from operations are unsophisticated (in the sense that they can be replicated by a naïve extension of analysts’ own earnings forecasts) is wrong. They conclude that these forecasts are, in fact, sophisticated. Call et al.’s claim is based on inappropriate and contradictory tests and their interpretation of their own evidence suffers from serious logical flaws. In fact, rather than raising doubts about our conclusions, the evidence in Call et al. reinforces them.
Keywords: analysts, cash flow forecasts, sophistication
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